1 GILBERTR. SEROTA(No. 75305) PATRICIAJ. MEDINA(No. 201021)securities.stanford.edu/filings-documents/1035/WFC... · lAny investments before November 4, 2000 are outside the class

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Case 3:05-cv-04518-WHA Document 345 Filed 05/21/2007

GILBERT R. SEROTA (No. 75305)Email: [email protected] J. MEDINA (No. 201021)Email: [email protected] M. SKAGGS (No. 202190)Email : [email protected] RICE NEMEROVSKI CANADY

FALK & RABKINA Professional CorporationThree Embarcadero Center, 7th FloorSan Francisco , California 94111-4024Telephone: 415/434-1600Facsimile : 415/217-5910

Attorneys for DefendantsWELLS FARGO FUNDS MANAGEMENT, LLC,WELLS CAPITAL MANAGEMENTINCORPORATED, WELLS FARGO FUNDSDISTRIBUTOR, LLC, WELLS FARGO FUNDSTRUST and STEPHENS INC.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

RONALD SIEMERS, Individually And OnBehalf Of All Others Similarly Situated,

Plaintiff,

No. 05-04518 WHA

Page 1 of 13r]

DEFENDANTS' RESPONSE TO REQUESTFOR BRIEFING RE RONALD SIEMERS(DOCKET 338) AND LOSS CAUSATION

v.

WELLS FARGO & COMPANY, H.D. VESTINVESTMENT SERVICES, LLC, WELLSFARGO INVESTMENTS, LLC, WELLSFARGO FUNDS MANAGEMENT, LLC,WELLS CAPITAL MANAGEMENT INC.,STEPHENS INC., WELLS FARGO FUNDSDISTRIBUTOR, LLC, and WELLS FARGOFUNDS TRUST,

Defendants.

DEFS' RESPONSE TO REQUEST FOR BRIEFING RE SIEMERS 05-04518 WHA

Case 3:05-cv-04518-WHA Document 345 Filed 05/21/2007 Page 2 of

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TABLE OF CONTENTS

Page(s)

I. RESPONSE TO QUESTIONS 1 AND 2 (PROSPECTUSES ANDSAIS): 1

A. February 1, 2000 - January 31, 2001 (Purchases Of DiversifiedEquity Fund) 1

B. February 1, 2001 - January 31, 2002 (Purchases Of DiversifiedEquity Fund) 1

C. February 1, 2002 - January 31, 2003 (Purchases Of DiversifiedEquity Fund) 2

D. February 1, 2003 - June 8, 2003 (Purchases Of Diversified EquityFund) 2

E. June 9, 2003 - January 31, 2004 (Purchases Of Diversified EquityFund) 3

F. February 1, 2004 - January 31, 2005 (Purchases Of Small CapGrowth Fund And Montgomery Emerging Markets Focus Fund) 4

II. RESPONSE TO QUESTION 3: THE ABSENCE OF PROOF OF LOSSCAUSATION AND OF A LEGITIMATE DAMAGESMETHODOLOGY ARE INSURMOUNTABLE BARRIERS TO MR.SIEMERS' PRIVATE RIGHT OF ACTION UNDER I OB-5. 4

A. Loss Causation 4

1. Actual Economic Loss 5

2. Proximate Causation 5

B. Damages Methodology 8


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Case 3 : 05-cv-04518 -WHA Document 345 Filed 05/21 /2007 Page 3 of

1 TABLE OF AUTHORITIES

2 Page(s)

3Cases

4Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) 4

5Greenberg v. Crossroad Sys., Inc., 364 F.3d 657 (5th Cir. 2004) 6

6In re Cornerstone Propane Partners, L.P. Sec. Litig., No. C032522(MHP), 2006

7 WL 1180267 (N.D. Cal. May 3, 2006) 7

8 In re Daou Sys. Inc., 411 F.3d 1006 (9th Cir. 2005) 6, 7

9 In re Merrill Lynch & Co., 273 F. Supp. 2d 351 (S.D.N.Y. 2003) 7

10 In re Salomon Smith Barney Mutual Fund Fees Litig., 441 F. Supp. 2d 579(S.D.N.Y. 2006) 7

11Joffee v. Lehman Brothers, 410 F. Supp. 2d 187 (S.D.N.Y. 2006), aff'd, 209 Fed.

12 Appx. 80 (2nd Cir. 2006) 7

HOWARD 13 Lentell v. Merrill Lynch, 396 F.3d 161 (2d Cir. 2005) 7NEMERDKICAFADK' 14 Newton v. Merrill Lynch, 259 F.3d 154 (3rd Cir. 2001) 5,9& KABKIN

15 Oscar Private Equity Invs. v. Allegiance Telecom, --F.3d--, No. 05-10791, 20071430225, slip op. at 16 (5th Cir. May 16, 2007) 5, 6

16SEC v. Zandford, 535 U.S. 813 (2002) 5

17Swack v. Credit Suisse First Boston, 383 F. Supp. 2d 223 (D. Mass. 2004) 6

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Case 3 : 05-cv-04518 -WHA Document 345 Filed 05/21/2007 Page 4 of

1. RESPONSE TO QUESTIONS 1 AND 2 (PROSPECTUSES AND SAIS):

Mr. Siemers' certification attached to Plaintiffs' Third Amended Complaint ("TAC") states

under penalty of perjury that he "has made no transaction during the Class Period in securities that

are the subject of this action except for those set forth in the Schedule of Transactions." TAC Ex.

A. The only Wells Fargo funds listed in the Schedule of Transactions are: (1) Wells Fargo

Advantage Small Cap Growth Fund (purchased on February 20, 2004 and reinvested capital gain on

December 15, 2004); (2) Wells Fargo Montgomery Emerging Markets Focus Fund (purchased on

February 23, 2004); (3) Wells Fargo Diversified Equity Fund (several purchases throughout the

period starting July 14, 20001 and ending December 24, 2003). The following prospectuses and

Statements of Additional Information ("SAIs") covered these funds:

A. February 1, 2000 - January 31, 2001 (Purchases Of Diversified Equity Fund):

Prospectus : The Wells Fargo Stock Funds Prospectus dated February 1, 2000 was effective

from February 1, 2000 until January 31, 2001 and covered the following 11 funds in addition to the

Diversified Equity Fund: Diversified Small Cap, Equity Income, Equity Index, Equity Value,

Growth, Growth Equity, International , International Equity, Large Company Growth, Small Cap

Growth, and Small Cap Opportunities.

SAI : The SAI dated February 1, 2000, as supplemented February 8, 2000 and June 1, 2000,

was effective from February 1, 2000 until January 31, 2001 and covered the following 15 funds in

addition to the Diversified Equity Fund: Disciplined Growth, Diversified Small Cap, Equity

Income, Equity Index, Equity Value, Growth, Growth Equity, Index, International Equity,

International, Large Company Growth, Small Cap Growth, Small Cap Opportunities, Small Cap

Value and Small Company Growth.

B. February 1, 2001 - January 31, 2002 (Purchases Of Diversified Equity Fund):

Prospectus : The Wells Fargo Stock Funds Prospectus dated February 1, 2001 was effective

from February 1, 2001 until January 31, 2002 and covered the following 14 funds in addition to the

lAny investments before November 4, 2000 are outside the class period and barred by thestatute of limitations for Mr. Siemers' I Ob-5 claim.


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1 Diversified Equity Fund: Diversified Small Cap, Equity Income, Equity Index, Equity Value,

2 Growth, Growth Equity, International, International Equity, Large Company Growth, Mid Cap

3 Growth, Small Cap Growth, Small Cap Opportunities, Specialized Health Sciences, and Specialized

4 Technology.

5 SAL The SAI dated February 1, 2001, as supplemented on February 15, 2001, September 25,

6 2001, and October 11, 2001, was effective from February 1, 2001 until January 31, 2002 and

7 covered the following 19 funds in addition to the Diversified Equity Fund: Disciplined Growth,

8 Diversified Small Cap, Equity Income, Equity Index, Equity Value, Growth, Growth Equity, Index,

9 International, International Equity, Large Company Growth, Mid Cap Growth, OTC Growth, Small

10 Cap Growth, Small Cap Opportunities, Small Cap Value, Small Company Growth, Specialized

11 Health Sciences and Specialized Technology.

12 C. February 1, 2002 - January 31, 2003 (Purchases Of Diversified Equity Fund):

HoWi 13 Prospectus : The Wells Fargo Stock Funds Prospectus dated February 1, 2002 was effectiveKK'E

NEMEkOV5K1CAFALK 14 from February 1, 2002 until January 31, 2003 and covered the following 13 funds in addition to theFa KABK1N

15 Diversified Equity Fund: Equity Income, Equity Index, Equity Value, Growth, Growth Equity,

16 International Equity, Large Cap Appreciation, Large Company Growth, Mid Cap Growth, Small

17 Cap Growth, Small Company Value, Specialized Health Sciences, and Specialized Technology.

18 SAL The SAI dated February 1, 2002, as supplemented June 12, 2002, August 23, 2002 and

19 September 6, 2002, was effective from February 1, 2002 until January 31, 2003 and covered the

20 following 19 funds in addition to the Diversified Equity Fund: Diversified Small Cap, Equity

21 Income, Equity Index, Equity Value, Growth, Growth Equity, Index, International Equity, Large

22 Cap Appreciation, Large Company Growth, Mid Cap Growth, OTC Growth, SIFE Specialized

23 Financial Services, Small Cap Growth, Small Cap Opportunities, Small Company Growth, Small

24 Company Value, Specialized Health Sciences and Specialized Technology.

25 D. February 1, 2003 - June 8, 2003 (Purchases Of Diversified Equity Fund):

26 Prospectus : The Wells Fargo Stock Funds Prospectus dated February 1, 2003 was effective

27 from February 1, 2003 until June 8, 2003, and covered the following 14 funds in addition to the

28 Diversified Equity Fund: Equity Income, Equity Index, Equity Value, Growth, Growth Equity,


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1 International Equity, Large Cap Appreciation, Large Company Growth, Mid Cap Growth, SIFE

2 Specialized Financial Services, Small Cap Growth, Small Company Value, Specialized Health

3 Sciences, and Specialized Technology.

4 SAL The SAI dated February 1, 2003, as supplemented February 28, 2003, was effective

5 from February 1, 2003 until June 8, 2003 and covered the following 18 funds in addition to the

6 Diversified Equity Fund: Diversified Small Cap, Equity Income, Equity Index, Equity Value,

7 Growth, Growth Equity, Index, International Equity, Large Cap Appreciation, Large Company

8 Growth, Mid Cap Growth, SIFE Specialized Financial Services, Small Cap Growth, Small Cap

9 Opportunities, Small Company Growth, Small Company Value, Specialized Health Sciences and

10 Specialized Technology.

11 E. June 9, 2003 - January 31, 2004 (Purchases Of Diversified Equity Fund):

12 Prospectus : The Wells Fargo Stock Funds Prospectus dated February 1, 2003, as amended

HOWARD 13 June 9, 2003, was effective from June 9, 2003 until January 31, 2004, and covered the following 15RICE

NEMEROVSKICANADY 14 unds in addition to the Diversified Equity Fund: Equity Income, Equity Index, Growth, Growth& RABKIN

15 Equity, International Equity, Large Cap Appreciation, Large Company Growth, Montgomery

16 Emerging Markets Focus, Montgomery Mid Cap Growth, Montgomery Small Cap, SIFE

17 Specialized Financial Services, Small Cap Growth, Small Company Value, Specialized Health

18 Sciences, and Specialized Technology.

19 SAL The SAI dated February 1, 2003, as amended June 9, 2003 and supplemented September

20 19, 2003, was effective from June 9, 2003 until October 30, 2003. The SAI dated February 1, 2003,

21 as supplemented September 19, 2003 and November 19, 2003 and amended June 9, 2003 and

22 October 31, 2003 was effective from October 31, 2003 until November 30, 2003. The SAI dated

23 February 1, 2003, as supplemented September 19, 2003 and November 19, 2003 and amended June

24 9, 2003, October 31, 2003, and December 1, 2003, was effective from December 1, 2003, until

25 January 31, 2004. These SAIs covered the following 20 funds in addition to the Diversified Equity

26 Fund: Diversified Small Cap, Equity Income, Equity Index, Growth, Growth Equity, Index,

27 International Equity, Large Cap Appreciation, Large Company Growth, Montgomery Emerging

28 Markets Focus, Montgomery Institutional Emerging Markets, Montgomery Mid Cap Growth,


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Case 3 : 05-cv-04518-WHA Document 345 Filed 05/21/2007 Page 7 of

1 Montgomery Small Cap, SIFE Specialized Financial Services, Small Cap Growth, Small Cap

2 Opportunities, Small Company Growth, Small Company Value, Specialized Health Sciences and

3 Specialized Technology.

4 F. February 1, 2004 - January 31, 2005 (Purchases Of Small Cap Growth Fund And

5Montgomery Emerging Markets Focus Fund):

6 Prospectus : The Wells Fargo Stock Funds Prospectus dated February 1, 2004 was effective

7 from February 1, 2004 until January 31, 2005, and covered the following 16 funds in addition to the

8 Small Cap Growth Fund and the Montgomery Emerging Markets Focus Fund: Diversified Equity,

9 Equity Income, Equity Index, Growth, Growth Equity, International Equity, Large Cap

10 Appreciation, Large Cap Value, Large Company Growth, Montgomery Mid Cap Growth,

11 Montgomery Small Cap, SIFE Specialized Financial Services, Small Company Growth, Small

12 Company Value, Specialized Health Sciences, and Specialized Technology.

HOWARD 13 SAL The SAI dated February 1, 2004, as supplemented July 30, 2004, was effective fromRICE

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FA1 ' 14 February 1, 2004 until January 31, 2005 and covered the following 20 funds in addition to the Small& KABKIN

15 Cap Growth and the Montgomery Emerging Markets Focus: Diversified Equity, Diversified Small

16 Cap, Equity Income, Equity Index, Growth, Growth Equity, Index, International Equity, Large Cap

17 Appreciation, Large Cap Value, Large Company Growth, Montgomery Institutional Emerging

18 Markets, Montgomery Mid Cap Growth, Montgomery Small Cap, SIFE Specialized Financial

19 Services, Small Cap Growth, Small Company Growth, Small Company Value, Specialized Health

20 Sciences, Specialized Technology.

21 II. RESPONSE TO QUESTION 3: THE ABSENCE OF PROOF OF LOSS CAUSATIONAND OF A LEGITIMATE DAMAGES METHODOLOGY ARE INSURMOUNTABLE

22 BARRIERS TO MR. SIEMERS ' PRIVATE RIGHT OF ACTION UNDER 10B-5.

23 A. Loss Causation

24 The "loss causation" element of a 10b-5 cause of action requires that a plaintiff prove that he

25 suffered an "actual economic loss" and that the alleged misrepresentation was the "proximate

26 causation" of that loss. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 346 (2005). Loss causation is

27 appropriately examined at the class certification stage, and the failure of a plaintiff to meet its

28 burden of proving these elements at the time of class certification requires that a class not be


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certified. Oscar Private Equity Invs. v. Allegiance Telecom, --F.3d--, No. 05-10791, 2007 WL

1430225, slip op. at 16 (5th Cir. May 16, 2007). Mr. Siemers cannot meet his burden of proving

either of these elements essential to his private right of action.

1. Actual Economic Loss

There is no dispute that Mr. Siemers made a profit on each of the Wells Fargo Funds in which

he invested. Having suffered no "actual economic loss," Mr. Siemers has no 1Ob-5 claim. Newton

v. Merrill Lynch, 259 F.3d 154, 177 (3rd Cir. 2001) (failure to show economic loss is fatal to a lOb-

5 claim; affirming denial of class certification in the absence of a viable class-wide damages theory).

We are aware of no IOb-5 case which permits a party who has made a profit on a publicly traded

security to manufacture hypothetical damages by an alternative investment methodology or by

seeking a disgorgement remedy from third parties accused of extracting funds from the subject

corporation.

2. Proximate Causation

Mr. Siemers may claim that the "economic loss" required under Rule 1Ob-5 can be proven if

the Net Asset Value ("NAV") of the funds he owned would have been higher by some hypothetical

amount had excessive fees not been extracted from those funds and not used for revenue sharing.2

That loss, however, was not the proximate result of any misrepresentations. At best, he will prove

that the purported loss was caused by the underlying misconduct of defendants in extracting

excessive fees, a fact that does not create l Ob-5 liability.

Loss causation as to the mutual funds held by Mr. Siemers is appropriately analyzed by

reference to cases involving publicly traded securities, since each mutual fund he owned is marked

to market every day. Plaintiffs cannot dispute this point, because they are bound by their "fraud on

2This is a theory the Court discussed in its March 9 order: "Had there been no misuse, thecommon fund would have been all the greater with all the more for investment." (Dkt. 248 at 20.)The Court followed this statement with a citation to SEC v. Zandford, 535 U.S. 813 (2002). WhileZandford may supply support for the "in connection with" element of Mr. Siemers' claim, itprovides no support for the "loss causation" element. Zandford was a regulatory action brought bythe SEC, not an implied private right of action. The Supreme Court granted certiorari only on theissue of "in connection with." Its opinion did not address damages, and damages was not anelement of the SEC claim.


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Case 3 : 05-cv-04518 -WHA Document 345 Filed 05/21/2007 Page 9 of

1 the market allegations" that the "market for the Wells Fargo funds was efficient" and that "the

2 market for the Wells Fargo Funds promptly digested current information regarding the Wells Fargo

3 Funds from all publicly available sources and reflected such information in the respective value for

4 the Wells Fargo funds... " TAC ¶¶287-88.

5 As Dura held, the only damages recoverable under Rule 1Ob-5 in the case of publicly traded

6 securities are those actual economic losses that were proximately caused by disclosures (or events)

7 which revealed the existence of prior misrepresentations or omissions. "The point to be pled and

8 proven is that the stock price declined as the market learned the truth; the amount of decline

9 attributable to the market's change from deceived to knowing is the measure of the plaintiffs loss."

10 Swack v. Credit Suisse First Boston, 383 F. Supp. 2d 223, 243 (D. Mass. 2004). In Oscar Private

11 Equity, the Fifth Circuit required a showing of IOb-5 loss causation to sustain a class action founded

12 upon a fraud on the market theory. It held that loss causation under Rule lOb-5 is established only

HOWARD 13 when the "negative `truthful' information causing the decrease in price is related to an allegedlyRICE

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° 14 false, non-confirmatory positive statement made earlier." --F.3d--, No. 05-10791, 2007f^ KABK!N

15 WL1430225, slip op. at 9 (quoting Greenberg v. Crossroad Sys., Inc., 364 F.3d 657, 661 (5th Cir.

16 2004)).

17 Plaintiffs have not offered any evidence showing that the price of the mutual fund shares

18 acquired by Mr. Siemers was inflated by any misrepresentation existing at the time of his

19 investment. They have alleged that the "truth" has come out through public releases, through this

20 lawsuit and the Court's orders, and other factors which have "created a public awareness of

21 Defendants wrongdoing." TAC ¶J 257-259. But, in support of this motion, they offer no evidence

22 to prove that when "the truth" was revealed, there was a corresponding change in the price of any of

23 the mutual funds owned by Siemers.

24 Absent such evidence in support of class certification, there is no lOb-5 class-wide remedy

25 because there is no "loss causation" under the authorities that analyze publicly traded securities post-

26 Dura. The Ninth Circuit held in In re Daou Sys. Inc., 411 F.3d 1006 (9th Cir. 2005), that "if the

27 improper accounting did not lead to the decrease in Daou's stock price, plaintiffs reliance on the

28 improper accounting in acquiring the stock would not be sufficiently linked to their damages." 411


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1 F. 3d at 1026. The issue of loss causation was addressed in the context of a mutual fund excessive

2 fee case in In re Salomon Smith Barney Mutual Fund Fees Litig., 441 F. Supp. 2d 579 (S.D.N.Y.

3 2006). There, as here, plaintiffs were seeking disgorgement of excessive fees used for revenue

4 sharing paid by the adviser. The court held that "disgorgement of the claimed excessive fees falls

5 entirely outside of the federal securities scheme as Plaintiffs have not linked these fees in any way to

6 a diminished value of the mutual fund shares." Id. at 590.

7 Judge Patel applied the same post-Duna loss causation principles in precluding certain claims

8 by putative class members in In re Cornerstone Propane Partners, L.P. Sec. Litig., No.

9 C032522(MHP), 2006 WL 1180267 (N.D. Cal. May 3, 2006). Plaintiffs sought to include in the

10 alleged class certain shareholders who had purchased the securities at allegedly inflated prices

11 caused by a prior misrepresentation of the financial condition of the company, but who had sold the

12 stock before corrective disclosures caused the stock price to decline. She held that such persons

Howe 13 "may not recover" under 1Ob-5 and Dura because of the absence of loss causation. Id. at *8.

NEMEROVSKI

"A°^ 14 A 1 Ob-5 complaint was also dismissed for failure to plead loss causation because plaintiffsKAtKIN

15 "have not alleged any disclosure of the alleged scheme of which they complain that caused the stock

16 price to decline." Joffee v. Lehman Brothers, 410 F. Supp. 2d 187, 191 (S.D.N.Y. 2006), aff'd, 209

17 Fed. Appx. 80 (2nd Cir. 2006). The court relied both on Dura and on the Second Circuit's decision

18 in Lentell v. Merrill Lynch, 396 F. 3d 161, 173 (2d Cir. 2005) (affirming In re Merrill Lynch & Co.,

19 273 F. Supp. 2d 351 (S.D.N.Y. 2003)), which held that loss causation requires that plaintiff prove

20 that "the misstatement or omission concealed something from the market that, when disclosed,

21 negatively affected the value of the security." Mr. Siemers cannot meet this burden of proof.

22 Instead of proving IOb-5 loss causation, Mr. Siemers chooses to assert that misconduct

23 resulting in excessive fees depleted the assets of the funds in which he was invested and to

24 hypothesize that the misconduct would have affected the NAV "but for" the revenue sharing. If

25 Mr. Siemers' flawed theory of lOb-5 liability is carried to its logical extreme, lOb-5 would no longer

26 be the limited, implied remedy crafted by the Supreme Court over several decades3, but would be

27 3Among the important doctrines that serve as gatekeepers of these limitations are the "in

28connection with" language in 1Ob-5, the "purchaser/seller" standing rule adopted by the Supreme

(continued ... )


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1 transformed into an all-purpose remedy for corporate misconduct. Any act of corporate

2 mismanagement, theft, waste, grant of excessive compensation, or any other misconduct allegedly

3 affecting the balance sheet of a publicly traded security could be actionable under l Ob-5. A plaintiff

4 would only have to allege that the improper acts were not disclosed and the stock price

5 hypothetically would have been higher if the balance sheet was improved. While such a damages

6 theory may be available under other statutes or common law theories, it is not what l Ob-5 allows.

7 B. Damages Methodology

8 Even if one were to assume that a hypothetical "loss" to the "value" of Mr. Siemers' mutual

9 fund shares is recoverable under Rule lOb-5, any methodology seeking to calculate the effect would

10 be unduly speculative, arbitrary, and discriminatory. Mr. Siemers asserts that he can prove lOb-5

11 damages merely by showing the total amount of revenue sharing paid as to each fund and then

12 returning it to investors in proportion to the size of their individual investments (Dkt. 335 at 6-7).

HowARD 13 This disgorgement theory is an incorrect measure of damages with respect to publicly tradedKICE

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G`FAE 14 securities under Rule I Ob-5.& RABKIN

15 The following is not intended to suggest that there is any method by which actual economic

16 losses recoverable under 1Ob-5 can be proven for Mr. Siemers, but rather to show that any logical

17 attempt to calculate the type of damages he suggests is not feasible. Determining the effect of

18 revenue sharing on investors would require at least three elements of speculation: (1) What would

19 have been a fair and reasonable fee structure absent revenue sharing? (2) How would the absence of

20 revenue sharing have impacted the amount of assets and investors in the fund? (As a simple

21 example, but for revenue sharing with Schwab and similar brokers, the funds would not have been

22 listed on their mutual funds marketplaces and their customers would have been unable to buy the

23 funds. As a result the total investment in the funds would be materially different "but for" revenue

24 sharing.) (3) How would the excessive portion of fees been invested by the fund manager during the

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27 (... continued)Court in Blue Chip Stamps and the "loss causation" element of the private right of action defined inthe Supreme Court's decision in Dura Pharmaceuticals.

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class period and what kind of return would it have generated for the investors in the fund?4 Because

each of the Wells Fargo mutual funds had different fee structures, assets under management, an/or

investment strategies, this analysis would have to be separately performedfor each fund in the case.

To our knowledge, no l Ob-5 damages case has ever permitted this type of speculation.

Second, any damages calculation that attempts to determine the hypothetical affect of reduced

or eliminated revenue sharing on the assets and performance of the fund would create a conflict

within the class of purchasers and would discriminate against holders. Not all purchasers suffered a

loss caused by revenue sharing. If a purchaser bought shares after a periodic revenue sharing

payment had been made and sold his shares before the next periodic payment, he would have

suffered no hypothetical loss. Yet, he would be a member of the class of purchasers. This is

sufficient to deny class certification. There is "no support in the case law for presuming economic

injury for the purposes of class certification in Rule 10b-5 claims absent indication that each

Plaintiff has suffered an economic loss." Newton, 259 F.3d at 180. "In a securities class action, a

putative class may presumptively establish economic loss on a common basis only if the evidence

adequately demonstrates some loss to each individual plaintiff." Id.

Although Plaintiffs may only represent purchasers of the mutual funds during the class period,

the alleged effect of excessive fees used for revenue sharing causes hypothetical damages both to

purchasers and holders. An investor who did not purchase or sell during the class period would

suffer the same type of hypothetical loss suffered by purchasers who held during the payment of

excessive revenue sharing payments. Yet, Plaintiffs apparently want to collect all of the excess

revenue sharing and give it only to purchasers. That would be improper.

For these reasons, "loss causation" as defined by the Supreme Court in Dura presents an

4As the Court stated in its March 9 Order: "Had there been no misuse, the common fundwould have been all the greater with all the more for investment... Every dollar lifted out of the

corpus reduced the net assets of the fund and reduced its ability to earn income." (Dkt. 248 at 20 &

21). The Court noted that the alleged misuse of the funds were for distribution. As a result, "but

for" use of these funds for distribution, the assets in each fund available for investment would have

been materially diminished. This is most simply illustrated by the fact that some investors would

not have had any access to the Wells Fargo funds through the many broker dealers who requiredrevenue sharing merely to list the funds for purchase.


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1 insurmountable barrier to Siemers claims and no class can be certified under his I Ob-5 claim.

2 DATED: May 21, 2007.

3 GILBERT R. SEROTAPATRICIA J. MEDINA

4 JASON M. SKAGGSHOWARD RICE NEMEROVSKI CANADY

5 FALK & RABKINA Professional Corporation

6

7 By: /s!GILBERT R. SEROTA

8Attorneys for Defendants WELLS FARGO FUNDS

9 MANAGEMENT, LLC, WELLS CAPITALMANAGEMENT INCORPORATED, WELLS FARGO

10 FUNDS DISTRIBUTOR, LLC, WELLS FARGOFUNDS TRUST and STEPHENS INC.

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Documents

1 GILBERTR. SEROTA(No. 75305) PATRICIAJ. MEDINA(No. 201021)securities.stanford.edu/filings-documents/1035/WFC... · lAny investments before November 4, 2000 are outside the class